2. Daniel W. Holt Small Business Administration 704-333-4886 Dan.Holt@mail.doc.gov

3. On Your Mark…. Every morning in Africa, a gazelle wakes up. It knows it must run faster than the lion or it will be killed. Every morning a lion wakes up. It knows it must outrun the gazelle or starve. It doesn’t matter if you’re a gazelle or lion. When the sun comes up, you better start running!

4. Building a Global Reach to Run a Global Race The Intermodal Global Supply Chain  1970 – 1 million containers  2000 – 20 million containers  2020 – 50 million containers  2050 – 100 million containers

5. The Pace Quickens Changing U.S. Economy 1970…International trade is 7% 2000…International trade is 27% 2050…International trade up to 50% Changing U.S. Life Styles Local Economy of 19 th Century—93% of Work Force Employed in Agriculture Global Economy of 21 st Century—3% of Work Force Employed in Agriculture

6. The Global Marketplace of the 21 st Century – Looking Ahead (% of World GDP) 2004 2050

7. Countries Ranked by Population: 2000 Country Population 1 China 1,262,474,301 2 India1,002,708,291 3 United States 282,338,631 4 Indonesia 224,138,438 5 Brazil 175,552,771 6 Russia 146,001,176 7 Pakistan 141,553,775 8 Bangladesh130,406,594 9 Japan 126,699,784 10 Nigeria 123,749,589

8. Four Common Misconceptions about Exporting –You have to be Big to Export – While large companies do the greatest volume of international trade, smaller companies are also taking advantage of opportunities in foreign markets. Surveys show that 60% of US firms now exporting successfully have fewer than 100 employees. –To Export You Must Have a Big Export Department – The size of the company’s export department depends upon the method by which the products are marketed. Direct Exporter – sells to a company or agency in a foreign country and ships the product to the overseas destination. Sporadic Exporter – sells in small quantities, and marketing and shipping responsibilities can be handled by one employee in addition to his regular duties. Indirect Exporter – sells through an intermediary company in the US., and requires no more specialized staff than is necessary for domestic sales. –To Export You Must Have Substantial Volume – Due to many smaller companies actively involved in international trade is a testament to the fact that large volume is not a necessity for exporting. If a US company devotes even 10% of its production capacity to foreign markets then it can expect to build substantial and permanent trade in foreign markets. –You Must be Fluent in Foreign Languages to Export – Knowledge of a foreign language is not essential to exporting. On the few occasions when correspondence and documents are not in English, many translation sources are available.

9. DOMESTIC RISK BANKRUPT DOES NOT WANT TO PAY CAN NOT PAY PRODUCT DISPUTE WENT OUT OF BUSINESS

10. International Trade Exporter(Seller) Importer(Buyer) I want to sell. I want to buy. Country Border

11. International Trade Some Things are Different Language Currency Banking Credit Terms & Risk Transportation / Packaging Insurance - Shipping - War Government Requirements - Each Country

15. International Trade Some Things are Different Language Currency Banking Credit Terms & Risk Transportation / Packaging Insurance - Shipping - War Government Requirements - Each Country

16. Risk Risk is a neutral term. It does not mean you will win or lose. High risk - small margin = bad High risk - good return= maybe

17. AT _SIGHT_____________ ABC CO. XYZ CO. ABC CO. AMOUNT APRIL 24, 1996 ALL EXPORTS Importer(Buyer) (Seller) (6) Documents (4) There are risks! INSURANCE Merchandise

18. Freight Insurance Why insure ? Carrier’s limit of liability (COGSA & Warsaw Convention) Filing Claims is problematic and complicated –Insurance pays the claim and then files with the Carrier –You may have to file suit against the Carrier to get his attention –Carrier will try to keep you talking until claim is “Time Barred”. –Irritation Use “declared value” to increase carrier liability ? Expensive & Insurance is cheaper and easier to use….. Usually required with Letters of Credit Cost is usually less than 2% of value of shipment……..(1.25% is average)

19. CARGO INSURANCE International transportation is risky!  $30 - $50 billion in worldwide losses  Ocean carriers only cover up to $500 per package, Airlines $20/kilo.  General average can put a lien on your cargo!  Buying insurance is a simple, straight- forward process, about $0.40/$100 of value.

20. I don’t need no stinking marine insurance

26. FOREIGN RISK THE MONEY IS NO GOOD THERE WAS A COUP A BRIBE IS NEEDED FOR CUSTOMS DOCUMENTS ARE NOT CLEAN FOREIGN BANK HOLDS MONEY

27. COUNTRY RISK ALWAYSThe first consideration will ALWAYS be country risk.

28. COUNTRY RISK If the deal is in a country that is too risky, the customer can never be good.

29. Political Risk Transfer risk- shortage of foreign exchange Political risk- events that prevent payment –moratorium on external debt –legal discharge of debt –war –cancellation of import license

30. Customer Risk Is the customer about to go bust? Can the customer pay on our credit terms? Is our goods “special”? Is this the first sale? Is the order more that the last order? Do we have a credit application?

31. CONTROLS BANK CREDIT REPORTING AGENCIES INSURANCE RESEARCH LETTER OF CREDIT

32. CONTROLS CASH IN ADVANCE FREIGHT FORWARDER GOOD BUSINESS CONTROLS

33. Risk Comparison INTERNATIONAL METHODS OF PAYMENT Exporter Risk High Importer Risk Low Trade Terms Open Account Documentary Collection(Time) Documentary Collection (Sight) Letters of Credit (Time) Letters of Credit (Sight) Payment in Advance INTERNATIONAL METHODS OF PAYMENT

34. Risk Comparison Can your business afford the loss if it is not paid? Will extending credit and the possibility of waiting several months for payment still make the sale profitable? Can the sale be made only by extending credit? How long have the buyers been operating, and what is their credit history? Has your business sold successfully to the buyer before? Are there reasonable alternatives for collecting if the buyer does not pay? (Does the buyer’s country have the legal and business infrastructure for settling disputes fairly and swiftly?) If shipment is made but not accepted, can alternative buyers be found? Questions to Ask Before Selecting the Payment Method

35. Basic collection terms or Accounts Receivable methods  Cash in Advance  Open Account  Documentary Collection  Letter of Credit

36. International Methods of Payment Time of Payment: prior to shipment. Buyer Pays –Wire Transfer –Check –Draft –Credit Card Goods available to Buyer: upon delivery Risk to Seller: no risks Risks to Buyer: loses use of funds until goods arrive. Seller may not ship goods as ordered or at all. No Credit Approval Required Cash In Advance

37. International Methods of Payment Time of Payment: upon payment of invoice. Goods available to Buyer: upon delivery. Risk to Seller: completely relies on Buyer to pay invoice when due. Risks to Buyer: no risks. Recommended for sales to long-standing customers with satisfactory payment history Open Account

38. AT _SIGHT_____________ ABC CO. XYZ CO. ABC CO. AMOUNT APRIL 24, 1996 (Seller) Importer(Buyer) Agreement (1) B/L (3) Merchandise (2) (5) (6) Documents (4) Open Account Merchandise

39. Time of Payment: upon presentation of the draft Goods available to Buyer: after payment if ALL Ocean Bills of Lading are included with the documents and after the cargo has arrived. Risk to Seller: possible non-payment of the draft. Risk to Buyer: has assurance of shipment, but Seller may not ship goods as ordered. Must pay to get title to goods. Not recommended for sales on extended terms Documentary Collections Sight Draft or Documents Against Payment

40. Time of Payment: at maturity of draft. Goods available to Buyer: upon acceptance of the draft by the Buyer and after the cargo has arrived. Risk to Seller: possible non-payment of the draft AND Buyer has the cargo. Risk to Buyer: accepts draft before getting title to goods. Seller may not ship goods as ordered. Documentary Collections Time Draft or Documents Against Acceptance payable at XX days (i.e., 30/45/60 – per sales agreement) after sight, after bill of lading Date, or after invoice date.

41. AT _SIGHT_____________ ABC CO. XYZ CO. ABC CO. AMOUNT APRIL 24, 1996 Documentary Collection Export Foreign Collecting Bank U.S. Bank Importer(Buyer) (Seller) B/L (3) Merchandise (2) (8) (6) (7) (5)

42. AT _SIGHT_____________ ABC CO. XYZ CO. ABC CO. AMOUNT APRIL 24, 1996 Documentary Collection Export DIRECT COLLECTION OPTION U.S. Bank Importer(Buyer) (Seller) B/L (3) Merchandise (2) Direct presentation (4) COPY OF TRANSMITTAL LETTER

43. Commercial Letter of Credit THE PURPOSE OF A LETTER OF CREDIT IS TO ALLOW STRANGERS TO DO BUSINESS.

44. AT _SIGHT_____________ ABC CO. XYZ CO. ABC CO. AMOUNT APRIL 24, 1996 Letter of Credit Exporter Importer(Buyer) (Seller) Agreement (1) B/L (6) Merchandise Merchandise (5) (13) (10) (2) (9) Foreign Issuing Bank (12) (4) Docs/Draft (8) (3) Letter of Credit (11) Apply for LC (7) LC/ Docs Draft LC Advised U.S. Bank

47. What is it? –The advising or negotiating bank, or another bank in the seller’s country, may add its “confirmation.” A confirmation is the bank’s commitment of payment of the transaction in the event that the issuing bank fails to pay on behalf of the applicant. When a bank is asked to add their confirmation they undertake a credit decision based on factors such as the time period of the LC, amount, and political, economic and other risks associated with the country of the issuing bank, as well as commercial and credit risks associated with the issuing bank. If a letter of credit is not confirmed, it is merely “advised” to the beneficiary without any payment obligation on the part of the advising bank. Do you need a confirmed export credit?

48. Consider the reputation and financial strength of the issuing bank. What about the political and economic environment in the country of issue? What about foreign currency controls in the country of issue that might impact the issuing bank’s ability to pay upon receipt of conforming documents? Do national laws in the country of issuance prohibit confirmation? What is your quality/relationship with the buyer? Do you need a confirmed credit?

49. Daniel W. Holt Small Business Administration 704-333-4886 Dan. Holt@mail.doc.gov

50. Cash Cycle Raw material Inventory Receivables Cash

51. Cash Cycle Raw material Inventory Receivables Cash

52. 51 Trade Finance Products SBA Export Express Export Working Capital Program (EWCP)

53. 52 SBAExport Express

54. 53 SBAExport Express Program minimizes the use of government mandated forms and procedures and streamlines the processing and costs of smaller SBA loans for exporters. Maximum loan amount limited to $250,000. Lenders are granted expanded authority and autonomy. The rate of guaranty is 85% for loans up to $150,000 or 75% for loans between $150,000 and $250,000.

55. 54 SBAExport Express Use of Proceeds  Finance standby letters of credit used for either bid or performance bonds;  Finance export development activities such as participation in a foreign trade show or the translation of product literature for use in foreign markets;  Provide transaction-specific financing for overseas orders;  Provide revolving lines of credit for export purposes – the term of which may not exceed five years;

56. 55 SBAExport Express Use of Proceeds (cont)  Provide term loans and other financing to enable small business concerns, including small business export trading companies and small business export management companies, to develop foreign markets; and  Acquire, construct, renovate, modernize, improve or expand productive facilities or equipment to be used in the United States in the production of goods or services involved in international trade. Proceeds may not be used to finance overseas operations.

57. 56 SBAExport Express Eligibility Requirements An SBA Export Express loan may only be made to a business that has been operating, although not necessarily in exporting, for at least 12 full months. The applicant must submit to the lender a plan which demonstrates how the loan proceeds will enable it to enter a new export market or expand an existing export market and should include projected export sales for the upcoming year as well as the dollar volume of export sales for the previous year.

58. SBA Size Standard GENERAL RULES THERE ARE EXCEPTIONS Manufacturing500 employees Wholesale100 employees Retail$6.0m in sales

59. EWCP EXPORT WORKING CAPITAL PROGRAM (EWCP)

60. 59 EWCP The program covers Pre-shipment working capital Post-shipment exposure Combination of pre- and post-shipment financing

61. 60 EWCP The program Supports single transactions or multiple sales under a revolving line Guarantees 90% of a private sector loan up to $1, 500,000 SBA exposure

62. 61 EWCP PRE-EXPORT Working Capital Orders against L/Cs Contracts for services Open account P.O.s with acceptable insurance or strong buyer Finance labor and materials Purchase goods and services

63. 62 EWCP COLLATERAL 1 st lien on financed inventory Assignment of proceeds from: Letter of Credit Documentary collections Foreign receivables Personal guarantees of owners (20% or more) and key principals, if applicable

64. 63 EWCP FEES and RATES Guarantee fee: maturities of 12 months or less = 1/4% $500,000 x 90% x.25% = $1,125 Interest Rates/Lender Fees: Fully negotiable

65. 64 EWCP ELIGIBILITY A business must: Meet SBA’s industry size standards Have been in business for at least 12 continuous months

66. 65 Daniel W. Holt Small Business Administration 704-333-4886 Dan. Holt@mail.doc.gov